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In the past, Nationwide criticised building societies that put customers on different standard variable rates. Now it has its own two-tier system
It wasn't so long ago that Nationwide prided itself on treating all customers equally and was quick to criticise the tactics of its high street banking rivals. But is its "proud to be different" motto now starting to unravel?
Britain's biggest building society was this week accused of "penalising" new mortgage customers by introducing a two-tier system that means they will end up paying a significantly higher interest rate than existing customers when their current loan deals end.
The change means Nationwide will effectively have two standard variable rates (SVRs) on the go – one for existing customers, who will enjoy a rate of just 2.5% when their current fixed or tracker deal ends, and another for those taking out mortgages from 30 April onwards, who will have to pay 3.99% when their deal expires.
That translates into a big difference in monthly mortgage bills. If you have two Nationwide customers with £100,000 interest-only mortgages, the one who moves on to a rate of 3.99% will fork out £124 a month more than the one who is put on to the lower 2.5% rate. Over a year, that's almost £1,500.
The move has already caused a bit of a kerfuffle – and no wonder, when the society has, in the past, campaigned loudly for rival lenders "to treat both new and existing customers fairly".
The row comes just weeks after Nationwide* caused controversy by banning borrowers, who pay to escape its fixed-rate mortgages, from applying for new home loans.
Here we answer the questions that both existing and potential Nationwide *customers are likely to ask.
So what has Nationwide done?
It has brought in a new standard variable rate called the "standard mortgage rate" (SMR). As of last Thursday, anyone taking out a new mortgage will move on to this when their deal ends.
It will sit alongside its "base mortgage rate" (BMR), introduced in 2001. Contrary to some reports, the BMR hasn't been axed – it stays in place for all existing customers.
The society has 1.4 million mortgage-holders, all of whom will either go on to the BMR when their current loan deal ends, or are already on it.
Has it done this before?
Two-tier mortgage rates (aka "dual mortgage rates") have been hugely controversial in the past. In 2001, several* lenders, including Nationwide, were reprimanded by the financial ombudsman after bringing in lower standard variable rates, but then banning some existing customers from taking advantage of these, insisting they stay tied to the "old" higher standard rate.
The ombudsman ruled this was unfair, and Nationwide eventually rolled over. It moved everyone over to the lower rate (the BMR), refunded people's overpayments and scrapped the old SVR. The whole fiasco cost Nationwide £90m. That's why it seems odd that the society is returning to a two-tier mortgage rate structure ... only* this time it's new customers rather than existing ones who lose out.
I'm on Nationwide's base mortgage rate now. How am I affected?
Nationwide's BMR is a pretty good place to be at the moment. You can stay on it as long as you like, it offers a great deal of flexibility, and there are no early redemption penalties if you want to bail out.
"As long as people are on it, the rate will be there," says a spokeswoman. But once you leave the BMR, you can't come back to it.
I'm on a Nationwide fixed-rate/tracker mortgage which I took out a little while ago. How am I affected?
When your deal period ends, you'll go on to the BMR (it's only available to existing customers reaching the end of their deal). You can stay on it for as long as you like.
What if I take out another fixed-rate/tracker when this one ends?
Let's say your two-year Nationwide fixed-rate mortgage deal is due to end in six months. If you decide at that point to take out another two-year Nationwide* fixed-rate, when that ends in 2011, you will go on to the new higher standard mortgage rate.
How does that new standard rate *compare with other lenders?
At 3.99%, the society's new rate is higher than some other lenders' SVRs – including that of its old foe, the Halifax, which is 3.5%.
However, many other lenders have SVRs that are well above 4%.
The expert view
Melanie Bien at mortgage broker Savills Private Finance says Nationwide's BMR has proved costly because of its guarantee, and it argues that as a result, it can't afford to compete with other lenders on new mortgage pricing.
But she adds: "Penalising new customers seems out of place for a lender which has usually prided itself on offering the same terms to new and existing customers alike … it is a huge shame that the country's biggest building society should have to go down this route."
Richard Morea at broker London & Country says that if you are on a Nationwide fixed-rate due to end soon, you will probably be keen on fixing another one. If so, he advises shopping around for the best fixed-rate for your needs.
However, those with smaller mortgages and/or relatively little left to pay off, may feel better-off staying on the BMR, even though this involves a bit of a gamble on interest rates. "If things go the wrong way, you can walk away without penalty and take out a fixed-rate," says Morea.
The expert view
Melanie Bien at mortgage broker Savills Private Finance says Nationwide's BMR has proved costly because of its guarantee, and it argues that as a result, it can't afford to compete with other lenders on new mortgage pricing.
But she adds: "Penalising new customers seems out of place for a lender which has usually prided itself on offering the same terms to new and existing customers alike … it is a huge shame that the country's biggest building society should have to go down this route."
Richard Morea at broker London & Country says that if you are on a Nationwide fixed-rate due to end soon, you will probably be keen on fixing another one. If so, he advises shopping around for the best fixed-rate for your needs.
However, those with smaller mortgages may feel that they are better off staying on the BMR, even though this involves taking a bit of a gamble on interest rates.
"If things go the wrong way, you can walk away without penalty and take out a fixed-rate deal," says Morea.
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